Market Overview

Suhail Capital Calls Ultimate Software 'Most No Brainer Short' In Sector


According to a Suhail Capital report out Monday, shorting The Ultimate Software Group, Inc. (NASDAQ: ULTI) is the most obvious trading strategy in the SAAS sector.

"Over the past 6 months we have had a small short position in Ultimate Software as we've viewed it as one of the more inappropriately relatively valued SAAS stocks," the firm explained.

The analysts continued, supporting their short position and encouraging the continuation of the strategy, "This is something we no longer have to prove as Ultimate now trades at a premium valuation to all these names [other names within the SAAS space]."

Related Link: Cantor And FBR Weigh In On Twitter, Tableau Software After Earnings

Justification For Suggestion

The analysts outlined four key reasons shorting Ultimate Software is "the most no brainer short in software."

  • It's An Outlier: Trading at 44 percent multiple premium to its peer group average, Suhail calls the stock a "significant relative outlier."
  • Trading At Sky-High Premiums To Recent Poor Performers: "[Ultimate Software] trades at 137 percent premium to Linkedin on EV/ADJ EBITDA multiple despite Linkedin guiding for same constant currency revenue growth in 2016 and having 300 bps better ADJ EBITDA margins."
  • IBID: Suhail also added that Ultimate Software "trades at 181 percent premium to Tableau on 2015 EV/Operating Cash flow despite Tableau's 21 percent 2015 operating cash flow margin and 30% 2016 revenue guidance versus 18 percent 2015 operating cash flow margin and 25 percent 2016 revenue growth guidance."
  • Growth Headwind Ahead: Suhail mentioned that Ultimate Software is due a growth headwind, citing the Affordable Health Care compliance deadline, "[Ultimate Software is] benefiting from broad based H2 2015/H1 2016 spike in North American Payroll/HCM provider selection activity […] will turn into a growth headwind H2 2016 and into 2017."

The analysts adamantly reiterated their position, "We believe that Ultimate Software is the most obviously blatant short in all the software space at this time [emphasis omitted]."

Tale Of The Tape

Year-to-date, Ultimate Software is down over 20 percent, while it is down just 2.45 percent for the last 52 weeks.

Over the past month, the issue has fallen more than 13 percent.

At the time of this publication, Ultimate Software was trading down 6.93 percent on the day at $154.48.

Latest Ratings for ULTI

Feb 2019DowngradesBuyHold
Feb 2019DowngradesBuyHold
Feb 2019DowngradesOutperformNeutral

View More Analyst Ratings for ULTI
View the Latest Analyst Ratings

Posted-In: SAAS Sunhail CapitalAnalyst Color Short Ideas Analyst Ratings Tech Trading Ideas


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